A vendor managed inventory program (VMI program) involves a process in which material vendors manage multiple factors in the supply chain in a highly efficient manner. At Field, we provide VMI programs that increase the efficiency of the inventory management process for our customers.
Major Difference Between VMI and Traditional Inventory Management
The main distinction between traditional inventory management and VMI is that with the former, the buyer makes independent decisions about the size of orders and with the latter (VMI), the buyer shares their demand data, inventory, and parameters for deliver with the supplier. Through this arrangement, the buyer empowers the supplier to establish the size of the order. As a result, the supplier has the task of managing the supply chain from start to finish and the buyer is responsible for providing timely and accurate data required for forecasting.
Vendor Managed Inventory System Operation
VMI creates an interdependent relationship between parties of a transaction in which the risk and the benefits are shared. The supplier can superintend and manage the supply chain by successfully handling the buyer’s inventory and supply chain management requirements.
VMI Promotes an Efficient Supply Chain
Vendor managed inventory solutions help ensure improved stock management, communication, forecasting, and accuracy. With VMI, there are no intermediaries, and all the difference aspects of the supply chain are considered and addressed. VMI minimizes excess stock and supply chain inefficiency by giving the supplier the ability to analyze consumer behavior and regulate appropriate stock levels. As a result, VMI diminishes the bullwhip effect, which occurs when informational accuracy about customer consumption decreases as one gets further away from the customer in the supply chain.
VMI Regulates Supply
With VMI, the buyer interacts with supply chain issues to a minimal extent. Thus, the workload of the buyer is reduced, enabling the supplier to handle issues such as the size of the order and logistics of stock availability. VMI decreases the risk of oversupply or out-of-stock conditions due to the enhanced communication and transparency it provides.
VMI Reduces Financial Risk
A vendor managed investor program helps reduce the financial risk that is connected with a traditional inventory management system. When buyers outsource to an unreliable third party or spend excessive time managing the inventory process, the risk becomes a reality. Buyers incur a financial penalty when carrying too much inventory. Suppliers incur risk when they must immediately increase their output or call in emergency stock. VMI helps avoid these issues.